Rusta AB (publ)

Good morning and welcome to the presentation of Rusta's second quarter. That is demands from August until October in our fiscal year that runs from 1st of May until end of April. Presenting will be myself, Göran Westerberg, CEO of Rusta, and our excellent CFO, Sofie Malmunger. The agenda today is short and sweet. We will start with the business update to bring you up to speed on what has happened during the quarter. We will then dive deeper into the financial performance with Sofie and then we'll summarize, talk a bit about current trading and finally open up for Q&A. Right, so moving on to the business update. First of all, I think, as usual, it's good to have a look at our store network. And we have, during the quarter, opened up five stores, plus another one after the end of the quarter, bringing the total up to six new stores since we last spoke. Three of them in Finland and another three in Sweden, bringing the total up to 231 stores as of now. At the same time, I can say that we have had a continued positive inflow of new stores, bringing the pipeline up to 48 new stores. This is a new all-time high, and I think this is on the back of a continued soft market for rental, making it possible for us to sign contracts on good commercial terms in areas that we've been looking for a long time. That also means in summary that in our guidance of openings in the coming three years, 50 to 80, we reiterate that we are very comfortable with the guidance that we will be somewhere in the upper end of that guidance span. Moving on to the numbers for Q2, we had a growth of 9.3% and a like-for-like comparable growth of 5.6%, both of those numbers excluding currency effects. We had a gross margin of 44.8% and an EBITDA margin of 6.7%. Looking at what kind of drove all of these numbers, you can say that one of the things is that we had increased sales in all segments during quarter two. We also had increased profitability across all segments. And part of the things that drove this, if we look a bit under the hood of these numbers, you can say that we had more customers, more tickets. We also had a higher average ticket. And this was in part due to customers climbing higher up in the price ladder, basically buying more higher ticket items. So all of this compounded drove both top line, but it also had a positive mix effect on gross margin. So you could say that a very well commercially executed Q2 with good offers, both good campaigns, effective campaigns, but also a very strong assortment combined with a more positive customer sentiment drove both top line and gross margin development. The gross margin jumped by 0.9% up to 44.8% and the EBITDA actually increased by a whole 45.6% and naturally we're very happy about that. Moving on to the consolidated numbers, we had 7.5% for the first half of the year, 3.3% for like, again excluding currency effects. We have an accumulated gross margin of 43.6% with a positive trend and a 7.8% EBITDA margin. So accelerated sales and volume on the back of the strong commercial execution and I think that's also one of the important parts that I would like to underline. For quite some time we've had volume development actually that we're selling more pieces. This is very important for our business model because it drives scalability, it drives our purchase power towards our suppliers. So basically this is also good under the hood for Rusta as our business model basically thrives when volume growth is really strong. All the growth initiatives that we have rolled out during the past year and also during the second quarter performs well and according to our guidance. And the most important part of that that has had an impact during Q2 is the rollout of the new store concept that was completed during the quarter. We had an increased gross profit by 5.2% and we have a positive trend on sales and margin. Looking at some of the key events, I mean, there was a lot of things going on during the quarter, but to pick out a few things, one of the things that I would like to underline is, of course, the expansion pipeline that we continue to draw benefits from the weaker general economy that has been around for some time now, giving us more opportunities to find locations where we want them, but also on terms that are commercially acceptable for us. So I think that will support our growth long term. And I think if the consumer sentiment is now also improving more clearly, I think the combination of this bodes really, really well for the coming years. Also, the store concept renewal has been completed on time and also within budget. It's receiving good feedback both from our employees operating the stores but also from our customers visiting their stores. And perhaps more important for this call, it also performs according to the guidance that we have reiterated for the past couple of quarters. So I think this is really good and it's also the first time that we have done a store concept renewal so fast and at such a low cost ever in the company. So this is now completely rolled out in all of the 231 stores that we have. Earlier we also announced that we had implemented the bonded warehouse that gives us some benefits on the cost side towards Norway. This has also been a very important part of making it possible for us to launch online in Norway with the deliveries over there. So during quarter two, we also launched online in Norway, meaning now that we have online in all of the Nordic countries, Sweden, Norway and Finland. The fourth thing that I would like to bring up is if you remember we had an IT incident early in last calendar year and of course that led us to review the setup and one of the things that we concluded was that we should not have all of our eggs in one basket, making a more diverse basket of suppliers, IT suppliers, a better choice. That is now fully implemented, the old solution and the old supplier has now been phased out and we now have a new setup in place and that is delivering as we expected and it's now stable. I can also add the fifth thing that we don't have over here, but that we've also written in the report, and that is that the inflow of new customers, the recruitment of new customers also continues. So we now have over 6.7 million fully registered Club Rusta members. And again, I think this is also very positive for the future that we have actually new people coming into the Rusta stores. And with that, I would like to hand over to Sofie to look more into the financial performance.

Sure. Okay, so as Göran has showed you, Rusta had a strong second quarter with increased sales and improved profit. We have a total net sales growth of 8.3%. Currency effects had a negative impact of minus 1.1% during the quarter. So the net sales excluding currency effects increased to 9.3%. The like-for-like growth excluding currency effects was 5.6%. This is an effect of both more customers and a higher average receipt. Our strategic initiatives such as the updated store concept has had a positive effect on our sales. In addition to the strong sales, we have a gross margin that has increased with 0.9 percentage points, which is an increase of 10.4%. This is mainly due to positive mix effects and effective campaigns, which offsets the continued negative impact on the gross margin due to currency. Our EBITDA margin is 1.7 percentage points stronger than the same quarter last year, which is an increase in EBITDA by 45.6%. The increase is primarily due to the strengthened gross margin. We see a strong performance across all our segments both in net sales growth and in profit. The numbers you see here for sales exclude currency effects. The largest growth was noted in Sweden where improved market conditions clearly indicate an increased readiness to buy among our customers. The sales growth for Sweden was 11.5% and like for like 6.5%. The profitability increased with 2.5 percentage points to 18.2%. Rustas positive performance in Norway has continued for several quarters and we are noting strong growth in sales and in the number of customers. Readiness to buy is rising and customers are increasingly choosing products in higher price ranges. The sales growth for Norway was 8.9% and like for like 6.5%. The profitability increased with 1.7 percentage points to 10.5%. Our third segment, other markets, consists of Finland, Germany and online. And our online sales are now available in Sweden, Finland and Norway. During our first quarter this year, the other market segments was weighted down by Finland, where we saw a damped summer sales. This has not continued during the autumn. Instead, we see positive development. Net sales growth excluding currency effects was 4.8% for other markets, of which like-for-like growth excluding currency effects was 1.9%. The profitability increased with 1.2 percentage points to 1.1%. So our profitability in the second quarter has increased compared to last year, which is primarily due to a well-executed campaign strategy and positive mix effects in the product assortment. This has a positive impact both in sales and in gross margin. We see a clear volume increase both in total and in like-for-like sales. The gross margin is also positively affected by lower sea freight costs than last year, and we also are starting to see lower costs for duty to Norway, thanks to our bonded warehouse. The operating expenses has increased compared to last year, but this is all in line with our plans. It's explained by extra costs related to our growth initiatives and higher reservations for variable remunerations. There is still a negative net effect in the quarter due to currency, but it's our belief that the currency effect peaked during Q1 and that it will now strengthen our profitability during the second quarter of our financial, sorry, second half of our financial year. So to summarize, the EBITDA development, we can clearly see that our growth initiatives in sales, the positive development in gross margin from effective campaigning and pricing drive our growth and increase our EBITDA margin with 1.7 percentage points in the quarter. And then some comments on our balance sheet and cash flow. The increase in working capital is a planned inventory build up due to more stores and increased demand. Net depth excluding IFRS amounted to, IFRS 16 amounted to 255 million SEK compared to 18 million SEK. An increase primarily due to the financing of optimization investment in the distribution center and also in the growth initiatives. Cash flow from operating activities increased and amounted to 151 ms compared to minus 2 ms last year for the quarter. The improvement was due to stronger operating profit and a lower increase in inventories compared to last year. cash flow from investing activities in the quarter was marginally higher than in the previous year mainly due to an increase in our strategic investments during the quarter all in all we continue to have a solid balance sheet and a stable financial position which will support our future growth We are on track and remain committed to deliver on our mid-term financial targets. During the quarter, we paid out dividend corresponding to 47% of the net profit, which is at the upper end of our dividend policy. And this is made possible by the strong financial position where we can both invest in future growth and at the same time increase the dividend to our shareholders. And with that, I hand over to Göran.

Thank you. Right. And then to summarize and also talk a little bit about current trading, I think most importantly, as I'm sure most of you have noticed, we announced a new CEO last week. And as you know, as I'm sure you remember, I resigned before the summer. And now we have actually the final decision here on a new CEO. which is Katrin Wigsell from H&M that will step in as CEO as of 1st of June 2026. Which means that we have plenty of time now for a good solid handover until it's time for her to carry on with the work with Rusta. And also just to preempt any worries or question marks on that, that the Rustas growth strategy as it is expressed in our vision is still varied and also the financial targets that Sofie also just presented is also very much valid and will of course remain. When it comes to current trading, we've had a good start of the Christmas sales and sales in November was well in line with the positive trend that we have seen in the second quarter. On top of that, we've also seen that November and December is the two most important sales months during the year. And November with Black Week has become more and more important over the past few years. So you'll be happy to know that this year we had record sales during the Black Week. To summarize it, we can say that we reiterate our guidance. One of the most important things when we talk about margin is the currency effects. We have now carried the brunt of the negative effects basically from top line selling in euros and the Norwegian crown. This is what hit us the first and that effect, that negative effect peaked during Q1 and it has receded. It's still negative but it has receded into Q2 and it will turn into positive in the second half beginning in Q3. We also see that what is driving this is the dollar effect. It's basically the Swedish crown being much stronger to the dollar is now going to give us that positive effect. And that's in purchasing, it's in transport and so on. And all things being equal, that positive effect is actually bigger than the negative effect that we've seen from the top line headwind. All projects on track in line with previous guidance. So I think across the board, when we look at what we're investing in, in the distribution central, the new concept that we rolled out, the opening of new stores and so on, we feel very comfortable and confident that our guidance holds true. So with that, I would like to open up for Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Nicholas Ekman from DNB Carnegie. Please go ahead.

thank you yes a couple of questions from my end firstly can i ask when you talk about a change in consumer behavior that you've seen here in the quarter to the positive um how do you have any examples when looking at comparable products because i i think that in q1 your sales are more exposed to cyclicality than you are now so for comparable products are you seeing the same here that there's a note but notable change in consumer behavior and a clear shift towards more high ticket items? That's my first question.

Right, so I think what we're alluding to when we're talking about this is that we're basically seeing a shift from a consumer that let's say a year ago was more hesitant to spending money on products that costed several hundred crowns or above 500 crowns, ticket values that were basically higher than that. But we're seeing now that that reluctance is receding and that we have a consumer in now with a higher confidence that is perhaps in a situation when they're choosing with, how should I say, a lower price alternative for the same product, actually stepping up and taking kind of the same function but at a higher price point. A nicer Christmas tree, a little bit nicer bed set or things like that. So that's basically the behavior that we're seeing in the numbers.

Very clear. Thank you. Can I also ask about the gross margin here? Obviously quite strong now up 90 basis points and that's despite continued currency headwinds. If these now reverse to tailwinds, can you say anything about the magnitude here? Are we talking about a gross margin expansion well over one percentage point in the coming quarters?

I would say that that is certainly possible. I mean, I think the disclaimer, if any, would be, of course, I mean, we have a low price promise. It depends a little bit on how competition is responding to this and so on. But I think we're in a really good place right now. We feel competitive with the prices we have. We see that customers are really responding well. We also, as you have already been into, we have this tailwind that is now ahead of us. So I think all in all, I don't think that is impossible at all.

I think it's also worth mentioning that when it comes to the currency effect, just as we said, the first half has been negative in the gross margin. And we're saying that the second half we will have a tailwind when it comes to the currencies. But the net effect for the full financial year is still negative when it comes to currencies. But the positive effect will still go on after the end of this financial year. So the positive effects of a lower currency is in total much higher than the negative effects we've seen. But we will not have all the impact in this financial year.

It will continue. It will continue.

Yes. If we freeze the currencies where we are at the moment.

And on that topic, you now have an EBITDA margin that is on a rolling 12-month basis, it's just below 7%. What do you think your chances of reaching your financial target of at least 8% margin is for the next financial year?

Well, just as we said, we are on track towards our financial targets where we say that the EBITDA margin should be above 8%. This is the first year in the mid-term financial targets that we have, which are two to five years for the mid-term. So I would say we are on our way, well on track.

Very clear. I think I'll jump back into the queue here. I might come back later with more questions. Thanks a lot.

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, good morning, Göran and Sofie. A couple of questions from me. Could you, maybe Sofie then, break down the sort of gross margin components in the quarter You talk about mix, you talk about campaign efficiency, you talk about freight cost duties when it related to Norway and FX, of course. Is there any way you can sort of divide those impacts?

Yeah, sure, I can try. Well, as we said, we have a positive campaign effect, which means that we have driven customers to our stores, which has driven our sales. But the effect is not it's balanced with the pricing and the mix effect of what the customers are buying. So the mix effect is that we are selling more home consumables and a lower share, sorry, home decoration and a lower share of consumables. So that's the positive sort of pricing, campaigning and assortment effects. Then you have the currency effect that we talked about, which is negative for the quarter.

When it comes to the freight... Would you care to specify how much negative it is in the quarter?

On an EBITDA level... I know it's difficult. You could say on an EBITDA level, the net effect is negative with around... If you would have had a constant currency, it would be 0.3 percentage points higher. And then you have the freight effect, which is positive compared to last year. That is both freight and, as I said, beginning to see a positive effect of the bonded warehouse, where we're not paying customs as we did before for products to Norway. That's basically it, I think.

Yeah, okay, thank you. And when you say that you have a good start to Q3, and of course we hear you when you say that you have a record black week, clearly sort of top line is performing well so far in Q3. Does that also mean, do you want to sort of also say that you have a similar development when it comes to the gross margin impact and what we just talked about in terms of mix and and all that and of course a declining negative impact from FX turning into positive. Is that what we should also read into the current trading statement?

Since there are so many components in the gross margin, I would not go into yet how that looks for the third quarter, more than just saying that we are seeing or believe that we're seeing a positive currency effect for the second half, which will probably start already in the third quarter.

Just to be very precise, do you think that the impact of FX could be positive already in Q3 or is it rather just turning positive during Q3?

I think it's possible that it will be positive in Q3.

Okay, good and a nitty gritty thing, but I just noticed that you had two stores signed in Germany in the last quarter. Now it's one store and I don't think there's any store openings in Germany in the past quarter. What happened there?

So this is what happens sometimes with the stores that we have. This was a government approval or a local government approval where we were declined. So we have taken it away, but the location is still interesting. So we're continuing to work on finding locations there or in the vicinity. So I would say this happens from time to time on all markets that a building that is not being built or a permit that we're not getting.

Okay. And Joran, you previously talked about being interested in clusters in the German market when it comes to stores. Is that prevalent in the market or is that far away or how do you view it?

So we're working full speed on all the things that we have discussed earlier. It's basically like we said that we have done enough and we continue to do a lot of analysis. So we are working according to those. It's been a little bit slower than what we've hoped for. The market in Germany is not yet where we see the market in the Nordic sector. but we're hopeful that we will be able to come back in some of the coming quarters with news on that, but not yet as of today.

Okay, thank you. That's all for me.

The next question comes from Gustav Hagius from SEB. Please go ahead.

Thanks. Good morning, guys. Thanks for taking my questions. I'm thinking about the trading update here that November has been, it seems at least as good as Q2 then in terms of like for like. I'm just thinking about the seasonality into quarter here in Q3 to get a sense of how much is already in the bank. 39 days in the quarter has gone. I think it's 14 days to Christmas Eve. I assume quite little sales after that, or could you advise us how much of a typical Q3 there is already sort of in the books here on the 9th of December?

Right. So we could say that, I mean, just to give a little bit of a flavor of what it looks like. November and December are clearly the two biggest sales months over the year. And January is one of the smallest. So you could say that this game is really about November and December. November has performed well, but you could say that December is equally important. And if we have a strong development in both of those months, I would say that January is less important, basically. So you could say that we're probably now halfway into the sales of the full quarter.

Okay. And then I'm thinking about the store rollout. You've said now I think for two quarters that you're comfortable with the upper range of the guidance up to 80 stores. Would it perhaps make sense to update on what they a more relevant guidance range is where you actually believe that you'll end up? Is 80 the midpoint in such a range or where are we now?

So I think it's a relevant question. And now with the speed of influx of the stores coming in, I think that that might be something that we will return to. But for now, I would say that we guide towards then the upper range, meaning somewhere in the range 65 to 80 stores.

Okay. And then finally for me, purchasing prices coming down, it appears, continue to come down, which has been a trend for some time in Asia, but it appears that the staples from Europe offsetting that a bit. Could you shed some light on what's the net effect here as you see it going to Q3 and Q4? Are you also going to have a purchasing power or purchasing price tailwind here, or do they offset each other, Europe and Asia? Pretty well.

Yeah, of course, we've been hoping for more positive development regarding the European purchases than what we've seen. But just as you say, it's been negative and that I actually missed in the last question regarding the gross margin buildup. uh it's it's negative in this quarter about the same level as it was in the first quarter we have just as you say a positive effect coming from asia which we believe will increase but it's very difficult to say regarding the european purchase prices okay thanks for my questions all right thank you

The next question comes from Nicholas Ekman from DNB Carnegie. Please go ahead.

Thank you. Just two quick follow-ups. First, we talked about the competitive environment before. Can you say anything about that, if you've noted any changes? Are there any changes in markdown activity? Do you see any changes in store openings by peers or anything else?

I think we're in a good place, like I've said, for the past couple of decades. I feel we have the initiative. I think we're in a strong position. I think we have a positive momentum. I think a bit connected to Gustav's question, who was on purchase prices. I mean, regardless of where the pricing momentum is from suppliers, I think you are in a better position when you have volume growth, and we have volume growth. So I think, you know... From my horizon, from where I look, I think I like what I see. Naturally, this is an ever-moving environment. But one of the things that I like is, of course, the new decisions here on, for example, online players from China with Xin and Temu. Even though I don't think that we are one of the players that have been, you know, severely hit by them. I think it's more on the margins. But I think it's a good move from the authorities to make sure that all retail players in this part of the world are competing on equal terms. So I think that all in all will also be positive. But otherwise, I think we have a good momentum. I think I like what I see. Price is really important for our type of game. And I think we're in a good place.

Very good. Second question is on online. Now that you're rolling out this in Norway as well, can you give the approximate share of sales online that you're generating in Sweden and Finland at the moment?

So I think this is like we've said, I mean, our main channel has historically and I think it will remain a physical channel. Customers actually coming to our stores and being inspired and buying. Online is a service. It's also a possibility for us to extend our range also for certain parts of our range where it makes sense for the customers to get it home delivered. They're also ready to pay for that delivery. So it's part of our range. Roughly half of our range is active online. So as a share of total sales, it's in the low single digits. However, the profitability is good. We have made sure of that. We have a model where we can actually deliver profitability that is at par or higher than our stores. So, yeah, but that's basically where you have it. I don't think that it will divert significantly from this. It will be somewhere in the single digit spectrum.

Very clear. Thank you so much.

All right. Thank you very much.

The next question comes from Daniel Schmidt from Danske Bank. Please go ahead.

Yes, just to follow up on sort of the mix, and you talked about increasing home decoration as a share of sales and maybe decreasing consumables. Does that mean also that private label has gone up? in terms of share.

Yeah, that's a logical consequence, you could say. I mean, I think overall, that's our strategy, of course. I mean, just to explain the logic, and I'm sure this is how you have arrived to it, you could say that pretty much 100% of everything that we sell in Home Deco is private label. So if that share increases, then naturally private labels is increasing as a share of total sales. At the same time, our strategy when it comes to consumables in our shampoo, soap, toilet paper and so on, is to increase and drive our own share of private label even here. So I would say both of those factors, even though consumables have been a smaller share during this quarter, compared to last quarter, we still move to increase private label over here. So both of those things I would say has increased the share of private label.

All right. And do you have an updated number of where you are in terms of private label as a total share of sales?

For this to make sense, we update it every year because otherwise it will be moving because of seasonality and so on. So we will report on that, but we will report on that when we have the full year numbers. The last number we had was 68. 68% of our volume during last fiscal year.

And is it your assessment, I don't know exactly where you are now, maybe you don't either, that there's still much to do on that topic?

Yeah, I believe so. And I think it's exactly what we talked about. It's in the consumable part. That's, let's say, the last bastion of A brands in the Rusta range. That's basically where we still have brands that are not controlled by Rusta. And we clearly would like to move in a larger part of our own range. So I think definitely there is a possibility for us to increase that share.

Yeah, and maybe the last one on that topic. Do you see any sort of preference differences between the Swedish or Nordic market and the German market in terms of your private label attractiveness?

I think less and less over time. Traditionally, if we look at the Nordic market, or perhaps specifically the Swedish market, and if you look, for example, in the German market, the acceptance of private labels looking at other players in that market, the acceptance has been much higher in Germany for private labels. It's much more common there, it's much more developed. And we have been here in Sweden and I think we can see the same in Norway and Finland, more conservative brands we trust and so on. But I think that is also receding. And I think inflation actually helped us because then people were really forced in trying to test alternatives. And I think the conclusion for that for most customers have been that this is, you know, this is just as well and it's a better deal actually moving into private label so that has it's kind of shifted in the in in the past couple of years and that's also one of the reasons why i'm positive that we can increase the share of private label going forward yeah thank you so much thank you there are no more questions at this time so i hand the conference back to the speakers for any closing comments thank you very much and then i think all that remains for me this uh quarterly report is to wish all of you a merry christmas and a happy new year and then we'll meet again on the new year's for for our next uh quarterly report our q3 report that will be on march 12th and until then happy holidays and thank you very much thank you